Fibonacci retracement levels

Using a low of 6495 for the DOW and a high of 11,240 we can calculate the Fibonacci retracement levels. The two likely scenarios are:

11240 - 6495 = 4745
4745 * 0.618 = 2932

First scenario:  6495 + 2932 = 9427 <= potential retracement level = we almost got there today.
2nd scenario:   11240 - 2932 = 8308 <= potential retracement level in 2nd scenario.

Note: My market low and high values are approximate. I was too lazy to try and look the exact numbers up.  But I am still not convinced that the bull market has yet returned despite any rally we might see.  I might consider buying some puts on the market indexes in the neighborhood of 10600 - 10,800 if we get there.

Market manages to move back above 10,000

The bulls actually took control today and the market regained most of its losses and the DOW managed to close above 10,000.  I took a second look at the chart, and 9800 (approx) was a major support point that is crucial.  Its a good thing that the market found support.  Of note is that the volume increased considerably over yesterday.  This is a good sign and we are looking for a follow thru day (another big day with high volume) to confirm a potential trend reversal.   Sprint showed a lot of strength through out the day and closed up a lot after the market reversed direction.  At this rate we will hit the $6 target relatively soon.  Wow, only a couple of days have gone by and greed and fear have already started battling it out.  Should I sell when the stock hits 6 or should I wait to see if it will make it to the 9-10 range?  Should I sell at 6 in anticipation of a pull back?  Decisions, decisions, decisions...  I am going to have to take another look at the rest of the market to see if any other stocks are worth risking some money for.  I am still skittish but do expect a mini rally to take place.  Will continue to wait and see for now.  I may not have many updates for the rest of the week.

Additional Thoughts:  Pull backs generally exhibit a 5 wave structure.  Although 3 wave pullbacks are possible, generally after a 5 wave run up, you will see a 5 wave pullback (A, B, C, D, E) before the uptrend resumes.  At best, we are entering wave D, at worst we are just entering wave B.  I do expect to see a bullish move in the market over the next few days.  But I wouldn't bet that the trend has reversed yet until we see some more evidence.   

Sprint (S)

It feels good to have given a buy on Sprint before the big boys.  I recommended a buy on May 13, and yesterday Goldman Sachs (and another broker) upgraded Sprint to a buy as well with a target of 6 (my target as well).  The options are nicely in the money now and I hope to hit 6 soon to cash out.  Since I have Nov 4 options, there is plenty of time left on these calls.

The market is also behaving as I expected and continues to drop.  We are at around 9865 for the DOW and the predicted drop for the expanding triangle should take us to around 9500 or so before long.  The question is whether the market will find support there or not.  I expect there would be some kind of bounce, but with all the negativity about the EU, the chance of the DOW breaking to the downside is pretty good and that will probably take us back into a bear market zone.  Let's see if we get some better news about the EU and maybe then we can find some support for the markets.

Almost end of day - 05-20-2010

Luckily I have been pretty distracted by Google IO.  It doesn't hurt that we have been out of the market for a while now.  Watching the market decimate your portfolio is not fun.  The DOW is down over 300 points as we speak and I can only imagine that tomorrow being Friday may not be a good day for the markets.  We have broken support around 10200 and the DOW must recover that point fairly soon or we would be testing the previous low.

Seen some really cool upcoming technologies for Google TV.  Major players are Google, Intel, Sony, Logitech, Dish Network, Best Buy and Adobe.  Keep these guys on your lists to watch.  The way you watch TV now is about to change dramatically.   It was a great live demo and, for the first time, the ability to jump seamlessly from TV to YouTube to Hulu, etc. seemed effortless.  Look for equipment to show up this fall.   Looks like I have to hold off on buying my next tv for a bit (although since I have DISH and a PS3, I may not need to buy an intelligent Google TV.   I am definitely going to be watching these companies for good entry points.

Also, Google gave all attendees the new Google HTC Evo phone from Sprint.  Beautiful large screen, 4G, etc.  I still feel that Sprint is going to provide a nice return in the nearterm and I will continue to hold my position in Sprint (and may even add to it if I get a bargain buy).  Hopefully, I can make the money and get out before the earnings release.

I will try to post some more detailed market analysis next week.

Before market open - 05-18-2010

Yesterday's market action appeared to be encouraging with the markets recovering most of their losses and closing slightly in the positive.  And we may get a rally today as a result.  But the volume was less than the prior day's volume indicating to me that its still doubtful whether the market has turned the corner.   In fact, I was looking at the chart of RERFX (American Funds - Euro Pacific) - a mutual fund that one can own for exposure to the emerging countries and European stock markets, and it appears to be completing what appears to be an upside down cup and handle formation.  I wouldn't expect the market to just roll over so we will probably see a rally here. If it does break thru to the downside, that may indicate further weakness in the market.

So we are probably looking for the market to rally in the short term, but I will continue to watch from the sidelines as options expiration approaches this Friday. 

Update on Sprint-Nextel (S) and the market view

Friday's action for the market was pretty bad and we saw distribution with a large drop.  The DOW lost 163 points and Nasdaq followed suit with a 47 point loss.  In the face of this major distribution day, we saw Sprint regain most of its loss during the day by market close.  Also, the drop came on declining volume.  That is pretty encouraging in my opinion.  I will continue to hold my position for now and see how it plays out.  I shouldn't need to remind you that in a bear market, 3 out of 4 stocks decline.  Trying to find winners to the upside is very difficult in a bear market since the odds are stacked against you that you will be wrong 3 out of 4 times.  We are not quite in a bear market yet (usually defined as a 20% decline from the top), but we are definitely in a correction.  Markets are also nervous about the financial regulation legislation in the works.  Once some kind of financial regulations pass, that would help eliminate some of the uncertainty from the market.  In the meantime, the oil continues to spill unchecked into the Gulf of Mexico and the economic and environmental damages continue to mount.  (A new estimate puts the spill at 70,000 barrels a day.  To put that into perspective, if that is true, then we have the equivalent of an Exxon Valdez oil spill every four (4) days).  Folks, despite everything you might read about BP stock being a bargain, I wouldn't touch that stock with a 10 foot pole until they cap the well and we have some idea of the damages they will be facing.  I would not be surprised if the stock tests the previous low set in 2009. 

One stock to keep an eye on appears to be IBM.  It is trying to break out of a base, but the market action seems to be keeping it in check.  When the market finally turns, I wouldn't be surprised to see IBM as part of the leader pack.  Remember, market pull backs are a great time to hunt for new opportunities and identify stocks that may break out as the next bull run starts.  Again, I am not advocating going out and buying the stock now because I am bearish on the market, just pointing out that despite all this negative action, IBM is still showing a positive bias. 

While the market is in a downtrend, you may also notice the pattern that the market may rally early in the week and lose ground towards the end of the week.  This generally happens during times of uncertainty where traders don't want to hold positions open over the weekend since there is a lot of time where negative news can decimate a stocks value.  When the tide starts to turn, you may see the opposite when people are more willing to hold onto their stock positions over the weekend.

Have a great weekend (or whatever is left of it). 
Updates next week might be sparse due to the busy week I have ahead of me.

Are we headed for a bear market?

Well, that is the million dollar question, and I wish I could answer that with certainty since then I could definitely make a million dollars.  Just looking at the daily chart of the DOW (see chart), it appears that we may be forming an expanding triangle.  Now expanding triangles are bearish by nature.  If we do stop at the lower boundary, we are looking around 9500-9600 for the DOW.  But if we fail to find support at 9500, there is no telling where the market will stop.  It could test and get support between 8000 and 8500 or it would proceed to the previous low around 6500.   Only time will tell.  I find optimism in the leading indicators from the economy that tell us that the US economy is growing again.  Yet I am afraid of the potential inflation lurking around due to all the liquidity and deficit spending around the globe.  The Hang Seng index is now officially in a bear market (more than 20% off the peak).  I will continue to watch this market for positive signs, but at the moment I am going to continue to hold my mostly cash position.

My sentiment update

What we witnessed recently could have been a legitimate capitulation that came at the end of wave 3.  It is possible that wave 5 has now started.  Some of the leading stocks are exhibiting that behavior (e.g. CMG - Chipotle Mexican Grill) is up a lot in the last few days and continues to be strong.  The stock is, however, approaching an all time high so I will wait to decide whether I want to get in.  I am still skeptical of this rally (but that is how wave 5 can get its momentum since I am sure there are a lot of other people like me watching this rally from the outside).   The indicators I use to determine market direction may actually peak by the time we overcome the 11000 resistance point and get to a previous high.  I think I might end up sitting this run out.  But I couldn't resist getting back into Sprint (S) with Nov $4 calls for 0.92 cents.  I have not made much money in this stock but the lure of a big hit always sucks me back in.  The new 4G phone launch date was announced (June 4) and should translate into a lot of new accounts for them.  The new HTC EVO phone also will support video conferencing (and has 2 cameras).  I will probably jump back to Sprint if the price is right...

Volatility is back

Looks like the DOW is poised to open up more than 3% this morning.  International markets are up over 5%.  And the futures are indicating a very strong open.  Say hello to the market volatility we have been missing in the market...

Say What? a TYPO?

Well, well, well.  The newswire is reporting that some trader made a typo of selling 16 Billion (with a B) worth of futures instead of $16 Million and that is what triggered the program trading that ended up causing a 10 percent drop in the DOW.   The recovery was pretty fast as well.  I am sure there were a few people nearing heart attack state if they were watching the market closely.  Now they are saying they are going to nullify some trades that occurred between 2:40 and 3:00 pm (Eastern I assume).

From a technical analysis perspective, this is going to throw a big monkey wrench in my indicator and pattern analysis since all the charts are going to be skewed for a while.  I am just liable to sit out and wait a while for this market to get its bearing.  I am sure there will be a lot more skittish people out there now that are going to have a hair trigger on that sell button.  Expect volatility to increase.   Beyond that I don't know what else to say and how to deal with the situation.  Watch and see is the mode for the day...

Too bad I didn't have an order to buy Accenture at 0.05 a share.  Apparently the stock went from 42 to 0.04 cents before recovering to close around $41...  :-)

UNCLE

Ok, Ok, I can't take it anymore.  I cried Uncle today and sold most of my remaining positions except for BCSI. (This includes all my mutual fund positions in my 401k). Holding on to BCSI is irrational since the market appears to be in a downtrend.  My technical side is fighting the fundamental side.  The potential gain in BCSI is pretty lucrative, yet the downside can be high.  The drop today is on high volume.  There are still 25 mins to go before market close.  Maybe I will sell it after all. The hard part now is going to be to stay out of the market when the rallies occur.  It seems like we should buy when the market drops a lot and then sell into the rally the next day when it pops.  But I think I will just stay out for a while.  Of course, I still had my option positions that are dropping rapidly in value.  But I may let them run and take a chance on expiration since I still have around 3 weeks to go (but they are now turning into pure gamble plays)

What's going on with the market

Just when you think things are going your way, WHAM, the market slams you down.  Lot of my technical patterns broke down once bad news hit them. RIG got hit by the drilling rig explosion and lawsuits. EK got slammed when it missed earnings expectations.  ETFC announced a secondary offering by one of its rescuers.  I think I sold most of my portfolio on Thursday and Friday (including Chipotle - CMG) and moved to cash.  All I have got left is BCSI and CELG.  If the market continues to trend down, both those patterns are also likely to fail.

I am seeing a lot of stocks acting like they have already topped out and are in an extended pullback.  The big decision I have to make is whether to sell everything (including mutual funds) and go to 100% cash.  The DOW definitely is indicating that it could fall below 11,000 and head back down.   However, I always let the market action dictate my actions.  If the market continues to head lower, I might just pull the trigger and go to cash.  After all, capital preservation is rule # 1.  If you fail to preserve capital, you will not have the opportunity to jump into the next big run.

I'll keep you posted on whether fear or greed wins ...